American Equity Life Shares Plunge and Recover: What You Need to Know

Is this meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Mr. Market has gone nuts again. Shares of American Equity Life(Nasdaq: AEL) suffered a staggering 15% loss early only to return to about even as of this writing.

So what: Blame traders who couldn't decide whether this annuity underwriter reported good or awful fourth-quarter results. On the one hand, revenue and net investment income improved. On the other, per-share GAAP profit fell to $0.41 from $0.48 in the year-ago period.

Now what: What matters more? I'd guess revenue and more specifically investment income. We know from years studying Berkshire Hathaway that underwriting profits tend to be a small part of the equation when it comes to insurance earnings. Judging by the data at Yahoo! Finance, it appears analysts were expecting American Equity to post $266.06 million in net investment income in the fourth quarter. What they got instead was $277.9 million, which suggests the early sell-off was, indeed, unjustified.

Author

Tim Beyers first began writing for the Fool in 2003. Today, he's an analyst for Motley Fool Rule Breakers and Motley Fool Supernova. At Fool.com, he covers disruptive ideas in technology and entertainment, though you'll most often find him writing and talking about the business of comics. Find him online at timbeyers.me or send email to tbeyers@fool.com. For more insights, follow Tim on Google+ and Twitter.